real estate  

Real estate
Within the past eighteen months there have been some significant developments in Dubai’s real estate legislation:
 
Retention on termination

 Law No. 9 of 2009 has assisted in providing certainty to developers and investors as to the amount of the purchase price which can be retained on termination for a default by a unit purchaser. Article 2 of Law No. 9 provides that, following service of a notice of default by the Land Department containing a 30 day cure period, if the unit purchaser has not fulfilled its contractual obligations the sums which the developer may retain are limited to certain percentages, which reflect the level of construction on the particular project.  The extent of completion of the project will be determined independently by the Land Department.
 
Payments prior to commencement of construction

Dubai’s Real Estate Regulatory Agency (RERA) wrote to a number of developers in February 2009, specifying that the developer can collect a maximum of 30 per cent of the unit purchase price prior to the commencement of construction and, following this, payments must be linked to construction milestones.  

Cancellation of real estate projects

Article 5 of Law No. 9 refers to a power of RERA to cancel real estate projects. If construction has started but then ceased, and there is no realistic chance of the project being completed by the developer, then RERA can consider cancelling the project on the grounds that it is commercially unviable. In these circumstances, the plot would be auctioned and the profits distributed between all purchasers. If there are insufficient profits to ensure full repayment of all purchasers, a proportionate amount would be distributed (thus apportioning the losses proportionately).  

Selling of units by sub-developers

A sub-developer must have fully paid the master developer for its plot and obtained a title deed before it can start selling units. The sub-developer will now therefore need to consider using profits from its other developments, or bank finance, rather than rely on the proceeds of sale of the units under construction.  

Mortgages

Law No. 14 of 2008 concerning mortgages in Dubai was a welcome further addition to steps taken to regulate and clarify real estate activities in Dubai. The Law clarified the position of developers, borrowers and lenders in the real estate market and introduced new practices in relation to securing borrowing over completed property as well as property sold “off-plan”. The main change to the previous position was the introduction of a system for the registration at the Land Department of mortgages over properties sold off-plan. Previously, such matters were dealt with contractually between lenders, borrowers and developers with the developer acting as “registrar” of the mortgage and agreeing not to allow disposition of the mortgaged property without confirmation from the lender that the mortgage has been released.